The educational achievements of parents will be used to determine how much funding Victorian schools get, under a State Government shake-up of the system.
At present, funding for disadvantaged schools is based on the occupation of the students' parents, but now their level of education will also be a factor in how $747 million of funds allocated under the Gonski agreement is spent.
Premier Daniel Andrews said the money included $566 million for schools over four years, boosting needs-based funding for Victorian schools by more than 70 per cent.
"For the first time, parents' education attainment, their job, what they do for a living, is being taken into account. No other Australian state does this," he said.
"We know that often these factors are linked to the disadvantage that students and school communities face."
Education Minister James Merlino said the Government wanted to better target funding to needy schools.
We're adding in the education attainments of the parents, so it's a much tighter way to target disadvantage funding," he said.
"This is world-leading stuff and it goes beyond Gonski, really targeting the needs of every single student in every government school in Victoria."
Mr Andrews said the money, which was included but unallocated in the May budget, would flow from next year.
"This is the biggest and the most profound boost to school education funding we've seen for many, many years," he said.
More than $170 million will be spent on ongoing programs for disadvantaged students.
The Government said the funding would amount to a statewide average of an extra $270 per student for the 2016 school year.
It is also setting 10 new targets for schools aimed at encouraging more students to excel in subjects like reading, maths and science.
The Government wants 25 per cent more Year 9 students to reach the highest levels of achievement in reading and maths over the next 10 years, and a 33 per cent increase in the proportion of 15-year-olds reaching the same standard in scientific literacy.
It also aims to halve the proportion of students who drop out of school during Years 9 to 12 by 2025.
The changes include a "catch-up" funding boost for students who do not meet Year 5 NAPLAN benchmarks.
Secondary schools will get $2,000 for each student who did not meet minimum NAPLAN standards when they were in Year 5.
But Opposition leader Matthew Guy said high-achieving state schools should not be financially penalised.
Australian Education Union branch president Meredith Peace said parents would welcome the new funding model.
"I think parents understand that some kids cost more to educate and if we're going to give an opportunity to all of our children in our community to get the best quality education, we need to look at needs-based funding," she said.
"We certainly welcome the distribution in the way it's been done, it will certainly support those disadvantaged schools, but there's obviously more work to be done."
Ms Peace called on the Andrews Government to commit to the final two years of the Gonski agreement, or risk denying students $1 billion in public school funding.
The State Government commissioned former Labor premier Steve Bracks to review state school spending after it found an $800 million "black hole" in Gonski funding over the 2016 and 2017 school years.
He is due to hand his final report to the Government by the end of the year.
From today's ABC online